IAG terminates $1.1B Air Europa deal, but considers alternatives

IAG has terminated a planned agreement to purchase Spanish airline Air Europa, and is instead looking at other options to work with the carrier and strengthen its Madrid operations.  

IAG had wanted to acquire Air Europa through its Iberia subsidiary to boost its hub in Madrid. However, the deal, first announced in November 2019, was derailed by the COVID-19 pandemic and also hit by competition scrutiny, making IAG boss Luis Gallego less optimistic that the planned acquisition would go through.  

The deal was officially called off on December 16, 2021. 

“It is very disappointing that we have had to terminate the current agreement to acquire Air Europa but the decision makes sense due to the market conditions, the deep crisis resulting from COVID-19 and taking into account our desire to maintain a disciplined approach to capital allocation,” IAG chief executive Gallego said in a statement to the stock exchange.  

IAG, which also owns British Airways, Aer Lingus, Level and Vueling had initially agreed to pay €1 billion ($1.13 billion) for Air Europa, but halved the price to €500 million ($567 million) in January 2021 as a result of the COVID-19 crisis. 

However, Gallego said in the December 16, 2021 statement that IAG was in talks with Air Europa owner Globalia to consider “alternative structures” that could offer benefits for shareholders, customers and employees.  

“In the same way, we will continue to work with the Spanish Government to guarantee the connectivity of Spain and the development of the Madrid hub,” Gallego added. 

As a result of terminating the acquisition agreement, IAG will pay Globalia €35 million ($40 million), in addition to a previously-agreed break fee of €40 million ($45 million). If both parties do come to a new purchase agreement, these amounts will be applied to any purchase price.